IN March 2021, the government decided to adopt Single Wholesale Network (SWN) methodology to deploy 5G infrastructure for Malaysia.
The two primary advantages of SWN are lowering average (deployment) cost per user per annum and ending telecom oligopoly and stimulating retail innovations.
SWN reduces overall average deployment cost per user per annum. The cost recovery period for 5G is around eight to 10 years before the arrival of 6G.
Individual private telcos will build their own 5G network which will be passed onto their respective users.
Meanwhile, the cost of developing a single 5G SWN network will be shared across the entire population. Hence, the average 5G deployment cost per user per annum by private telcos are always several times higher than SWN mode.
Contrary to the popular belief, SWN under neutral party could dismantle oligopoly. The entry barrier for telecom is substantially high due to upfront cost to build cellular towers.
The domestic telco sector had consolidated into oligopoly. The SWN model reduces entry barrier for newcomers.
The SWN can be classified as disruptive model to existing oligopoly nature of cellular telecom industry. The success of SWN will decrease cost and increase quality of cellular service for the entire population.
On the flipside, the SWN model is risky because it has higher probability of failure due to financial and technical complexity particularly under an inexperienced new entity such as Digital Nasional Bhd.
The failure to develop reliable 5G infrastructure swiftly will shorten the cost recovery period. This increases the cost of deployment per user per annum.
SWN executes simultaneous mass deployment of 5G network which narrows the urban-rural development gap.
However, it requires high upfront capital cost. Surprisingly, the Government did not appoint Telekom Malaysia (TM) who has a cash reserve worth over RM4 bil, operates 640,000 km of fibre optics, and strong technical personnel to implement 5G SWN.
The 5G implementation cost under DNB will be done through debt such as deferred payment to vendors, bank loans and Islamic Bond (sukuk).
These debts will pay through sales of wholesale capacity to private telcos. On a macro-level, this seems like a fool-proof business plan, but micro-level analysis has revealed too many red flags in the DNB model that increases the cost of 5G.
First, DNB will be spending nearly RM4 bil as corporate cost for next 10 years. The corporate cost includes office rental, board of directors, CEO perks, website domain, public relation exercises etc. This additional cost is non-existence for Telekom Malaysia.
Second, multi-layered cost on existing telecommunication infrastructure. In Dec 2021, DNB signed a 10-year lease worth spending RM2 bil with Telekom Malaysia for equipment such as fibre optics and radio access network (RAN).
The RM2 bil cost is unnecessary if Telekom Malaysia was the SWN developer.
Third, about 18.7% of 5G deployment under DNB is funded by deferred payment to vendors. Deferred payment reduces number of potential bidders than conventional procurement method.
Only 50% of the invited Network Equipment Providers (NEPs) submitted the bid to finance, supply, deliver and manage 5G. It is unreasonable to claim DNB received the best price when half the invited bidders dropped out.
Fourth, the deferred financing carries a premium over traditional procurement method. Ericsson Malaysia will provide deferred payment through receivables purchase arrangement (RPA) through consortium of banks led by United Overseas Bank (M) Bhd.
RPA is form financing whereby United Overseas Bank (M) Bhd ‘buys’ the invoice from Ericsson Malaysia to DNB at a discounted rate.
Ericsson Malaysia imposed a premium of RM900 million to negate the bank’s discount to keep their profit margin intact.
Fifth, under RPA, United Overseas Bank (M) Bhd would seek payment from DNB and not Ericsson Malaysia.
The banks could legally auction DNB’s 5G assets if DNB defaults the payment obligations.
It would be an international embarrassment if banks auction the property which belongs to a government-owned firm and thus the Government will have to bail out DNB with public taxes.
Sixth, DNB will be taking high-interest bank loans as working capital. Naturally, banks impose very high interest rate for non-collateral and non-guarantee loans.
The high interest loans translate into higher 5G premium for the people. For comparison, the coupon (interest) rate for Ringgit dominate bonds by Telekom Malaysia is between 4.23% to 4.88%.
Seventh, DNB’s ability to repay the debt was based on revenue projection from immediate selling of 5G services to private telcos.
There is an ongoing “Mexican stand-off” as private telco refuses to subscribe to DNB’s 5G services.
Besides that, private telcos are actively lobbying to setup a 5G consortium parallel to DNB. This further threatens the financial viability of the DNB.
In conclusion, the best success scenario is under Telekom Malaysia if government insists with SWN.
Appointing Telekom Malaysia to deploy 5G SWN reduces the rollout cost by nearly 50% compared to DNB.
Subsequently, the average cost of 5G would decreases to RM0.10 per GB. For comparison, cost of 4G under private telco is between RM0.45 per GB to RM0.55 per GB.
Alternatively, the Government may award the 5G spectrum to private telcos than pursuing SWN under DNB. – Feb 23, 2022
Sharan Raj is human rights activist, environmentalist and infrastructure policy analyst.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
